Need help w/ homework

I'm working on an assignment for grad. school that is right up your alley, so I thought I would start my search for answers right from the horses mouth. Your opinions are greatly appreciated.

Here's the assignment:

Joe operates a local gardening and tree trimming business. Joe also does some light landscaping work for a few of his commercial accounts. Joe is very successful and has enough clients to keep him busy, along with at least three workers, working six days a week. Occasionally, a client rents a piece of equipment from Joes business. Clients sometime take their time paying for Joes services and, therefore, Joe is sometimes late paying his bills.

Joes capital is only about $25,000, most of which consists of his new $20,000 truck and his assortment of lawnmowers, chainsaws, edgers, and gardening equipment. Joes wife handles the books, yet is not involved in actual business operations.

Should Joe continue to operate his gardening and tree trimming business as a sole proprietorship?

I would say that it is foolish for Joe to operate as a sole proprietor. It is one thing to operate by yourself, but add employees into the mix and it is an entirely different animal.
My gut instinct is that it is also unsafe to rent equipment to homeowners. People are stupid, and tend to hurt themselves with power equipment.

People will sue at the drop of a hat, and it doesn't matter that Joe is a nice, hardworking guy. They smell money and that goes out the window. It is risky in today's world, and for what little money it costs to incorporate, it is crazy not to have the extra protection. Mike

The definition of insanity is to continue doing things the same way and expecting a different result.

I can't see myself getting rich at this, but I enjoy the work so that's ok for me. Juggling finances in small businesses like this can be tricky, bills are always there, some clients just fail to understand we need prompt payment to survive, just as they do from their boss.

Occasionally, a client rents a piece of equipment from Joes business. Clients sometime take their time paying for Joes services and, therefore, Joe is sometimes late paying his bills.

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1st, never lend your gear to anyone, especially someone not trained. Only maybe to a mate who is a fellow LCO, no one else.
The stuff costs too much to lend, never comes back exactly the way it went out...

Slow paying clients, that's part of business....as time goes Joe should weed these clients out, hard to survive carrying people.
When Joe gets more good payers and less bad ones, his finances will enable him to get on top of this problem, hopefully.

Re,
Joe is very successful and has enough clients to keep him busy, along with at least three workers, working six days a week.

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Joe is busy 6 days a week and is succesful....if Joe can manage work and finances well enough there seems no reason why he shouldn't employ some help if his work load is increasing.
But employing people may sound glamourous etc but it adds stress, politics between workers, etc, etc, there is a lot involved, and in some cases extra workers doesn't always mean huge profits, on paper it does, a few things go wrong and it isn't hard to be in a situation of how you wander how you keep the pays up and get more work. Just because Joe is now busy 6 days a week doesn't necessarily mean he needs to employ though, only if his work load is increasing.

There is nothing wrong with being a solo opperator though, time is your own with a lot less worries, husband and wife teams would be perfect lawn maintenance crews, providing they can work together

Thanks Mike,
This is actually a B-Law course and lawsuits are a major focus, so your insight is very helpful. Are there any real world situations that you or someone you know have faced along those lines?

Tony, thanks to you as well.
Lending out equipment aside, would you say that the potential for lawsuits is a major factor for someone in your field to refrain from incorporation?...or would you just prefer to keep things simple in order to preserve quality of life?

Joe is busy 6 days a week and is succesful....if Joe can manage work and finances well enough there seems no reason why he shouldn't employ some help if his work load is increasing.But employing people may sound glamourous etc but it adds stress, politics between workers, etc, etc, there is a lot involved, and in some cases extra workers doesn't always mean huge profits, on paper it does, a few things go wrong and it isn't hard to be in a situation of how you wander how you keep the pays up and get more work. Just because Joe is now busy 6 days a week doesn't necessarily mean he needs to employ though, only if his work load is increasing.

Click to expand...

My mate Tony makes a bloody good point here! But.............I think to make it in this biz (I'm talking Million dollar Lawn/Landscape Biz) you've gotta make sacrifices in the short term to reap the long term gains.

It's hard slog! Just trust your decisions and take it all in your stride.

Should Joe continue to operate his gardening and tree trimming business as a sole proprietorship?

1. Yes because his only at risk would be $25,000 which would be used to pay lawyer fees anyway
2. Yes he can transfer his assets to his wife who does not operate the business
3. Yes because corporate expenses are higher especially taxes.
4. No because the lawyer wants to rack up billable hours doing the incorporation
5. No because incorporation might give some protection against personal assets.
6. Yes the corporate veil is easily pierced by good lawyers.
7. No if Joe is wanting to expand his business
8. Yes because its a pain in the but to do all the paperwork.
9. No because he may get some personal credit relief because he pays his bills late.

Overall based on the info you provided I would say Yes continue operating as a Sole Proprietorship, but be prepared to incorporate as Joe expands his business. But in the mean time up the limit on his liabilty to policy to 3 mil.

Lending out equipment aside, would you say that the potential for lawsuits is a major factor for someone in your field to refrain from incorporation?...or would you just prefer to keep things simple in order to preserve quality of life?

Question 1: No. Lawsuits can happen to anyone at any time.
Incorporting, all part of business expansion.

Question 2: I go for the simple way of life nowaday, had a sizable biz once, 25 employees, sure the work volume is fantastic and profits were great, stress comes with the package and being obsessed with your biz like you do as it becomes you can also eat at you, to the point where you wander why?

Making a nice living solo has it's advantages.

A good small family business would be husband, wife and 2 or 3 casual workers, easy to manage, less chance of friction within the ranks, still enough manpower to cover someone if they are sick, yet profit balance against wages etc is desirable.

I also support Mike's reasoning for staying sole prop. at this time. There is not much I have to add to his that hasn't been hit, but lawyers and accountants want to have companies incorporate, it provides them with additional revenue each year to file additional paperwork. I am fortuantate to have a great accountant to inform me about all the aspects of each and at this time my gross and net don't warrant me being incorporated, it is cheaper as a schedule C.

Your instructor may disagree however and say "why yes of course you should be incorporated, always incorporate, due to etc, etc. I have had many college teachers and bus. law teachers like that.